Run The Economy Hot To Lower Black Unemployment: Think Tank Report

The gap between Black and white unemployment has persisted for decades in the U.S.

The Economic Policy Institute, a think tank dedicated to laborers, wants to change that. Its proposal: run the economy hot, giving more attention to unemployment rather than inflation and thereby helping lower-wage workers, and disproportionately increasing the wages of Black Americans, according to a new report. 

A traditionally high Black unemployment rate should be taken into consideration when allowing inflation to rise, the EPI report said. 

“The potential to close race-based gaps in the labor market should be counted as a substantial benefit in these deliberations and should convince policymakers to take on more inflation risk.”

What Happened: The EPI paper explores the possibilities and limitations of always running the economy hot to reduce, and hopefully close, the Black-white unemployment gap.

While the report acknowledges the downsides of keeping interest rates slow and government spending high — runaway inflation not seen since the 1970s or a wage-price spiral — it also touts the benefits.

Those include faster-growing wages and more job opportunities, which disproportionately help Black workers as firms do more hiring to keep up with rising aggregate demand.

The report’s models show that if the unemployment rate was 1% smaller each year between 1973 and 2019, the Black-white wage gap would have declined by 18%. 

Why It Matters: While the Black-white wealth gap is getting worse and is inflected in many areas of the economy — including in housing and health, to name only two sectors — Blacks are also unemployed at a rate that is almost always double their white counterparts, according to Center for American Progress research.

Not everyone agrees with a plan to run the economy hot.

While the Fed’s current strategy of letting inflation temporarily rise over 2% has helped increase employment, particularly for Black workers, some economists on the right and left, including former Treasury Secretary Lawrence Summers, think the central bank has gone too far. 

Fed Chair Jerome Powell confirmed Friday the Fed will continue to allow inflation to rise unless there are signs it's starting to become permanent. 

Photo: Tyler Nix via Unsplash.